M7 is one of the leading specialists in the pan-European, regional, multi-tenanted real estate market.
M7 is majority owned by its senior managers and has circa 200 employees in 14 countries across Europe. The team manages over 830 retail, office and industrial properties with a value of circa €5.3bn.
M7 identifies value-add investment opportunities for investors in the smaller, multi-let sector. This sector is often neglected and consid-ered inefficient due to the small individual lot sizes and the management intensive nature of the underlying assets.
However, M7’s established platform, market leading information and data management systems, and experienced team ensure that M7 can capitalise on this perceived inefficiency. The business typically aggregates numerous individual assets to form large portfolios with income levels and yields well above the real estate market averages.
With encouraging equity investor appetite for value-add real estate and a number of exciting market opportunities, M7 anticipates fur- ther significant growth in assets under management.
Investment Principles & Strategy
Through its extensive European network, M7 is able to identify a pipeline of attractive real estate deals across the UK and continental Europe, typically offering gross yields averaging circa 7% pa at the asset level (particularly appealing in the current low interest rate environment). With strong equity investor appetite for value-add real estate and with M7’s proven track record, the company is seeking to exploit a number of opportunities by making further investments over the coming 12 months.
M7 identifies investment opportunities for investors by linking a value-oriented investment philosophy with an active, hands-on asset management platform. The on-the-ground real estate experience available to the business through its pan-European platform results in a top-down and bottom-up approach to initial investment decisions and ongoing asset management strategies.
M7’s fund management business is forecast to continue on its growth path by offering high-net-worth and institutional investors the opportunity to invest in higher yielding commercial real estate across Europe (including Central Europe). In parallel, M7 will continue to provide advisory services and asset management services on a separate account basis and will consider co-investment joint ventures.
UK: The economy appeared to rebound in Q3, following a record collapse in GDP in Q2 due to a pandemic-induced fall in domestic demand. GDP rose strongly in July as COVID -19 restrictions were loosened, while industrial production also grew in the same month. The recent snap-back of some restrictions due to a rise in cases appears to have influenced a slowdown in the private sector towards the end of the quarter, however the government contributions of wages should stem further job cuts. Over the course of 2020, economic growth is forecast to contract 9.9%. Following a relative ‘bounce- back’ in economic activity in 2021, GDP is forecasted to expand 6.5%.
Additional uncertainty around Brexit is expected to dampen business investment further, regardless of whether there is an eventual deal or not. As a result, the UK’s recovery from the coronavirus crisis will probably be slower than other European countries and, therefore, it is expected that fiscal policy will remain loose and monetary policy will be eased further.
The average ‘all sector’ UK prime yield has increased by 39bps in the last 12 months to August 2020. Industrial distribution and multi-let assets, however, have remained stable at circa 4.25%. Upward trends for yields are affecting the suspected sub-sectors including retail, leisure parks and shopping centers amidst the COVID -19 pandemic.
The industrial sector has fared well through 2020, with UK recording take- up of 19.1m sq ft during H1 2020, largely due to an impressive second quarter, higher than any quarter previously recorded. The current environment heavily influenced the spike in the online retail sector, which accounted for 40% of take-up in the first half of 2020.
In the UK regional cities, overall, the office vacancy rate is the lowest on record at 7.5% as at August 2020. There is currently a total available office supply of 11.3m sq ft (as at August 2020), reflecting a 17% decrease since the end of 2019. The strong occupational market fundamentals of regional UK cities mean the areas are well positioned to weather impacts of COVID -19.
Industrial, warehouse and regional office markets are understood to be the sectors which will suffer the least negative impact from COVID -19, and potentially benefit throughout the recovery, translating to a strong outcome for M7.
EUROPE: The rebound in Euro-zone economic activity was gaining momentum faster than initially expected in Q2, although there will has been significant discrepancies between different countries’ recoveries. Available indicators for Q3 suggest a slowing of the recovery with unemployment rates rising and retail sales cooling from Q2, likely reflective of the second wave being endured across the Euro-zone. Overall, the economy is expected to contract by 8.1% in 2020, followed by a 5.5% increase in 2021.
The logistics sector is best positioned to outperform other sectors, owing to strong fundamentals and robust demand. The elevated ecommerce activity will be of long-term benefit, translating to a steady rental forecast for the remainder of 2020. Long term, the annualised growth forecast remains positive. Logistics yields are expected to remain stable over 2020, and in most cases, remain at historical lows. On an occupational and investment level, M7’s significant exposure to the logistics and warehouse sectors are positioned to outperform.
Early indications point to some degree of resilience for the European office sector. While leasing activity has recently been subdued, vacancy rates remain at historic lows and average prime European rents held firm during the first half of the year, as did the majority of office yields.
Despite a significant drop in investment volume in Q2 2020, there remains ample unallocated capital and pent-up demand for European assets. M7 expects the supply/demand imbalance to remain and demand to continue across European markets.
Strategic corporate development
M7 was established in 2009 and focused initially on the UK multi-let industrial sector. The need for efficient and accurate data management was a key part of the firm’s founding philosophy. A number of JVs were created with private equity partners to capitalise on the opportunities created in the aftermath of the global financial crisis. A workout business was also launched to help lenders manage higher yielding secondary assets.
The development of the continental European platform started in 2013, with the goal of providing real estate owners and investors with a first-class, integrated asset management platform across Europe, specialising in multi-let regional real estate. With local teams on the ground, the business is well placed to access local market intelligence and source attractive deals. All assets are actively managed throughout the holding period, integrating local market intelligence into the decision-making process. Today, M7 has operations in the UK, Croatia, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Luxembourg, the Netherlands, Poland, Portugal, Spain and Sweden.
In Q4 2020, M7 Investment Group was established as a holding business for the M7 group of companies. The group includes:
M7 Real Estate
Pan-European regional real estate investment and asset manager.
Based in the Netherlands and UK, M7 Capital has five core business lines: capital markets, lending, loan servicing, advisory and workout solutions.
M7 Joint Ventures
Balance sheet joint ventures into real estate platforms, including:
• M7 Developments focused on development activities and currently UK focused.
• M7 Asia focused on bringing Asian capital into Europe and exploring a number of Asian real estate opportunities.
M7 Tech Investments
The balance sheet technology investment arm of the M7 Investment Group. To date, it has invested over £13m in exciting businesses that enable the future of the real estate industry.
M7 looks to agree target returns for each of the strategies implemented. We have a team focused on reporting and measure performance against forecast on an ongoing basis.
This information is intended for Professional Clients and Institutional Investors only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision or relied upon in any way by the public. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects and the information within is of a general nature. The source of all information is M7 unless stated otherwise. M7 has a wholly owned subsidiary, M7 Real Estate Financial Services Limited, that is authorised and regulated by the Financial Conduct Authority (Reference number: 618047).